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Notes to myself, possibly of interest to others.
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Wednesday, October 26, 2011

Housing Deflation Continues - Rosenberg

As we indicated ...yesterday, attitudes towards homeownership have changed ... semi-permanently. Home prices are still deflating in many parts of the country. Home buying plans are depressed. And we see in today’s WSJ that the one sector benefiting most from this secular shift is the apartment sector in the U.S. where nationwide vacancy rates declined further to 5.6% in Q3 from 5.9% in Q2 (Reis data), and net effective rents 2.3% firmer compared to year-earlier levels.

It looks as though a record 1.5 million rental households will be formed this year — those pundits calling for a recovery in the single-family sector based on higher headship rates from the demographic side of the equation failed to take into account the ongoing mean reversion process taking place at it pertains to the descending homeownership rate, which could easily fall to 60% from 66.4% before the bottom can finally be declared. Keep in mind that every percentage point decline in the ownership rate is equivalent to the expansion of one million rental households.

The Case-Shiller Composite 20 Home Price Index unexpectedly fell in August, down 0.05% (seasonally adjusted) versus market expectations of a 0.1% advance. Prices are now down four months in a row and have fallen in 14 of the past 15 months.

As for the 20 metropolitan areas, 14 saw prices fall in August, which is the most we have seen since March of this year. The most substantial decline was seen in the Atlanta area, which saw its home prices fall 1.7% in August on top of the 1.6% drop the prior month. Providing an offset was the Washington D.C. area, which saw home prices rise 1.0% on the month.

For those who are looking at the “raw” seasonally-unadjusted numbers, U.S. home prices rose only 0.2% MoM in August, which is slower than the 0.9% increase in July and the 1.1% pop in June.

In a separate release, the Federal Housing Finance Agency (FHFA) home price index fell 0.1% MoM in August, a disappointment given the markets were expecting a 0.2% advance. The kicker was the huge revision to the July number, which is now flat from an earlier reading of 0.8% MoM.

Year-over-year, the Case-Shiller continues to deflate, now falling 3.8% in August, which makes this the 11th month in a row of falling home prices. And the FHFA home price index fell by 4.0% and has not seen a rise in home prices since July 2007.

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